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UNIT 4 Exam Review 1) You have purchased $70,000 worth of goods. The dealer is giving you terms of 3/10, n/60. You were billed on March 15 and given a loan rate of 6.5%. If you take out a loan to take advantage of the discount, how much do you really save by getting the loan and taking advantage of the discount, but still paying interest?
Answer: Amount of discount = 70,000 * .03 = $2100. Net amount to borrow from bank = 70,000 – 2100 = $67,900. Interest cost of borrowing money at 6.5% = 67,900 * .065 * (60-10 days)/365 day in a year = $604.59. Amount saved by borrowing money to pay within time period to take advantage of discount = $2100-$604.59 = $1495.41 2) Determine the monthly payments for a $4000 loan at 5.5% add-on interest for one year.
Answer: 4000 * .055 * 1 = 220.00 in interest. (4000 + 220)/12 = $351.67 for periodic payment 3) In the loan in the last question, what is the true rate of interest? The loan was monthly payments for a $4000 loan at 5.5% add-on interest for one year.
Answer: (2*m*I)/(A *[N+1])= (2*12*220)/(4000[12+1]) = .1015 = 10.15% 4) Sally purchased an additional 100 cows. She paid $500/cow. She paid $10,000 down and took out a 5 year loan with interest calculated using add-on interest for the rest of the cost of the land. Assume annual payments and 4% interest rate. What is the amount of total interest paid over the life of the loan?
Answer: she paid $8000 over the life of the loan. 100*$500=$50,000 - $10,000down = $40,000 borrowed 40,000 * 5 * .04 = $8000 5) Using the information in the last question, what is the periodic payment for year 8 of the loan? Note: Sally purchased an additional 100 cows. She paid $500/cow. She paid $10,000 down and took out a 5 year loan with interest calculated using add-on interest for the rest of the cost of the land. Assume annual payments and 4% interest rate. What is the amount

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